Pros And Cons Of Selling Your Business: A Comprehensive Analysis

Before making the final decision, you’ll carefully weigh the pros and cons of selling your business. Entrepreneurs have personal and professional objectives when building a business. Most intend to scale it for an IPO with the possibility of an exit low on their list of priorities.

Whatever may be your reasons for selling the company, timing the exit and prepping it carefully is crucial. That’s how you can expect to value the business accurately and get the optimum price for it. Retaining the services of expert M&A advisors and other professionals is always advisable.

But before scouting around for buyers are preparing the materials for listing the company, reconsider your options. Are you absolutely certain this is the right strategic move? Are there any other channels you can explore? Would you prefer to liquidate the company or execute a trade sale?

Opting for a trade sale has an advantage since the acquirer is likely working within your sphere. They may want to purchase your company as a strategic move to achieve cost, financial, or revenue synergies. Or, they may want to acquire it for its IP, patents, or business secrets.

Acquihires to onboard the skill sets and talent could also be an objective. You can rest assured that the company will continue running as part of a larger corporation. Read ahead to understand in detail the upsides and downsides of selling.

Upsides of Selling Your Company

You’ll take advantage of favorable macroeconomic and market trends.

Taking advantage of an uptick in market trends and favorable macroeconomic conditions is an upside of an exit. As long as the business is operating well, generating rich profits and revenues, and has a robust customer base. You can expect to get offers from several buyers looking for collaborations.

Typically, if larger corporations are bidding for the company, know that selling it is an advantage. It’s an indication that your products and brand are attracting attention from the big players in the market. Exiting at this time is advantageous since you can get competitive and premium prices for it.

Founders can dictate terms and conditions that work best for them. Keep in mind, that when larger brands offer to purchase a smaller startup, they see potential and a possible competitor. Grab the offer while you can and rake in the profits.

If the buyer sees strategic value in acquiring the company with low risks, they may be open to offering you a considerable lump sum payment. Partnerships with acquirers looking for strategic synergies will be beneficial for your company in more ways than one.

Access to better distribution channels, advanced technologies, and skill sets are only some of them.

The financial benefits are enticing.

Entrepreneurs starting a new company invariably since their savings into it in the initial stages. You may have also run up huge credit card bills or lines of credit when bootstrapping. Raising money from friends and family is also a strategic move to get the company up and running.

When weighing the pros and cons of selling your business, prioritize your ability to pay off the debts. Even if you’ve paid yourself in equity for the money you invested, the company is a separate legal entity.

Pay off the outstanding dues using the returns from exiting. That is; if you haven’t cleared them out of the profits the business earned.

Yet another option is to reinvest the profits into other companies or projects that can earn you higher returns. That’s a great approach to diversifying your asset portfolio. If you’ve been facing financial difficulties on a personal front, using the returns from the sale can help resolve them.

You’ll invest time and resources into a new project.

It’s not unusual for founders to want to exit a project so they can divert their money, time, and other resources into a new project. Serial entrepreneurs use this strategy to build and scale companies, and then exit them to start new ventures.

You can use the opportunity to explore new business ideas and possibly new industries.

You’ll have a better work-life balance.

Even if you aren’t ready to retire, exiting the company is a good way to take some time off. You can also use it as a sabbatical between projects to spend time with the family, travel, and unwind. Even if you’re not interested in stepping away permanently, consider staying on as a consultant.

The company will continue to benefit from your supervision and direction, making the transition easier. At times, the terms of the M&A deal require the founder to stay on and possibly draw a stipend for their time in the company,

You’ll ensure its stability as it integrates with the new partners. Ensuring cultural integration between the workforce and other synergies can be crucial for the merger’s success. Your team will also benefit from your guidance and the possibility of employee attrition and turnover will be minimized.

Meanwhile, you can spend time learning new skills and engaging in activities for personal growth and development. Also, grab the opportunity to mentor budding entrepreneurs or build firms for investing in new startups.

You can leverage your expertise and experience to nurture the business community.

You’ll exit a struggling business.

Founders may ideate an interesting business concept on which to build a company. But, it may not necessarily be a success for several different reasons. For instance, lack of funding, a weak concept, the founder’s inability to scale it, or a lack of skill sets.

In that case, it’s advisable to sell the distressed business and allow competent buyers to take it over and turn it around. The new owners can nurture the dying business with funding, know-how, skills, and operational strategies.

A sale can prevent shareholders and stakeholders from losing their investment and income source, also You’ll transfer the burden of risk on the buyers, particularly, if you’ve been dealing with regulatory or legal challenges. Or, if the market conditions are changing.

But, if that is the case, expect to get a lower price for the company. The buyers will want to offset the risks they’ll take on by offering reduced pricing.

On the flip side, some companies become super successful and are ready to go to IPO. But, for that to happen, they need a competent board of directors and trained executives. Handing over the reins to better-qualified people who can take the company forward is in its best interests.

You’ll save jobs.

Selling a struggling company in a trade sale will ensure that the employees keep their jobs. You can always negotiate the terms and conditions to ensure that the workforce remains in the company. Particularly, if you’re exiting in anticipation of an economic downturn.

A strategic acquisition will ensure that the company is resilient and sustainable through the volatility and the workforce has opportunities.

Keep in mind that in fundraising, mergers, or acquisitions, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Downsides of Selling Your Business

When considering the pros and cons of selling your business, pay special attention to the downsides. You’ll understand the risks and work out strategies to deal with them.

Control will shift to the new owners.

Founders building a business have a vision, mission statement, and direction in which they want to take the company. Exiting the company will mean giving up control over an organization they have worked hard to build. And, this can be very challenging.

The new owners may want to merge the company with their own and institute a mission and culture distinct from your own. Exiting founders may not have much say in how the company is run so be prepared for this situation. You’ll prepare mentally and emotionally to let go of your “baby.”

Prepping the company for an exit takes time.

You may have to prepare the company for sale by making some basic upgrades to entice buyers. For instance, cleaning up the financials, preparing three years’ worth of statements, and clearing tax dues. Liquidating non-essential assets and improving operational efficiency are also crucial.

When buyers assess the company, their due diligence focuses on the downsides and reasons to offer you a lower price. You may have to invest in repairs and maintenance, shoring up the company’s cybersecurity, and upgrading systems and software.

Be prepared to incur the costs of selling your business that can add up quickly. Also, factor in the listing and marketing costs to present the company in the industry marketplace. These activities may take not only investment but also time and effort.

Factor in the delays from the time you start looking for buyers until the sale is executed and you receive the final check. You’ll enter into negotiations, complete the due diligence, and execute the final signing and paperwork. All of these procedures are time-consuming.

Founders should retain the services of an expert M&A advisor to help them execute the sale. This approach ensures that they can continue running the company efficiently. They can also focus on prepping the company and let the experts deal with the nuances of the transaction.

The terms and conditions may not be favorable.

Depending on market conditions and the company’s viability, you may have to accept a lower price. The buyer may also request terms and conditions like signing a non-compete agreement. This clause may prevent you from starting a new company within the same niche, vertical, or location.

The acquirer may also mandate that you remain with the company and continue running it for a fixed time. Or, that you can only provide consultancy services and not build a new business for a fixed time. The founder may also have to accept extended warranties and indemnities.

These clauses in the sale agreement are designed to secure the buyer from the possibility of future liabilities. Make sure to include terms that limit the extent of the liability you can face.

You’ll lose the future profits the company generates.

If the company is growing quickly and demonstrates the potential for earning substantial profits, you’ll negotiate for a higher price. However, that also means that you’ll lose out on the chance to earn those returns. In other words, you’ll place future earnings into the hands of the buyer.

Ineffectual integration leads to an unsuccessful merger.

The risk of improper integration is the biggest reason why mergers fail. The possibility of lowered employee morale, uncertainty, and attrition among the top talent is very real. If the workforce is unable to coordinate their work practices, that can spell disaster for the legacy company.

Employees getting fired to eliminate overlapping and redundant departments is commonplace in mergers. If your workforce has been with you since the company was built, you’ll ensure that their future is secure post-merger.

Work out strategies and practices to provide support and alternative jobs to navigate the transition. Also, prepare them to deal with a different management style, company culture, and workplace practices.

Knowing how to value your company is an essential step when you’re considering a sale. Check out this video where I have explained in detail how to calculate the exact worth of the business.

Undervaluation and underpricing are a real possibility.

When considering the pros and cons of selling your business, you’ll also focus on the right time for an exit. Selling during an economic downturn or if the company is struggling will, invariably, result in a lower valuation. You might have to accept a lower price.

This is why, experts advise you never to sell during downtrends. On the flip side, cutting your losses and exiting could be a better strategic move. Resolve this issue by talking about projected numbers and the company’s future potential for growth and profitability.

Further, before planning a sale, you’ll gather in-depth information about the market conditions and the company’s market value. Being well-informed will position you better to negotiate for the true value.

Don’t undersell the business, but consider other options like a management buyout, IPO, or liquidation, as a worst-case scenario.

The Takeaway – What Are Your Options?

Weighing the pros and cons of selling your business involves making tough decisions. Every company has unique circumstances and as the founder, you’ll trust your gut. Consider and reconsider your options carefully and rely on the recommendations experts provide you with when accepting the final offer.

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